Indonesia - Money

The first decades after independence were marked by rampant inflation,
as Sukarno's government printed money as needed. After
Suharto's New Order government took power in 1965, the so-called
Berkeley Mafia of U.S.-trained economists was able to bring inflation
under

Exchange rates: Indonesia

Indonesian rupiahs (Rp) per US$1

Jan 2001

10,000

2000

8,421.8

1999

7,855.2

1998

10,013.6

1997

2,909.4

1996

2,342.3

SOURCE:
CIA
World Factbook 2001
[ONLINE].

control through tight control of fiscal and
monetary policy
. An exception was the sudden surge of oil wealth that sent inflation
soaring to 40 percent. Inflation was brought back under 10 percent by
1978, but in the meantime exports fell due to the combination of
inflation and a
fixed exchange rate
.

To facilitate the exporting of goods at competitive prices, the
government lowered the value of the rupiah 50 percent in 1978, and again
in 1983 and 1986. After that devaluations of about 5 percent a year were
allowed. Until the crisis of 1997, the government tried to limit
exchange rate fluctuations to within this range (a policy called a
"managed float"). Between 1990 and 1996 the rupiah
depreciated by an average of 3.9 percent. This stability encouraged
investment, as investors knew that their profits would not be eaten up
by inflation. It also encouraged domestic businesses to borrow money in
foreign currencies such as the dollar (reaching almost US$80 billion),
which would prove disastrous for them once the rupiah crashed. In August
1997, after seeing neighboring countries try and fail to keep their
currencies stable, the government announced it could no longer pursue
the managed float policy. Exchange rates fell from Rp2,500=US$1 in July
1997 to Rp17,000=US$1 in June 1998, before improving to Rp8,000=US$1
later that year. Indonesia does not maintain capital controls, and
foreign exchange may be freely converted and can flow in and out of the
country unrestricted. As part of the recovery strategy, the
International Monetary Fund required Indonesia to raise interest rates
to bring back foreign investment.

The first stock exchange was set up in Jakarta (then known as Batavia)
in 1912, though it was closed during World War II. After independence an
exchange was established in 1952, only to be shut down by a program of
nationalization in which the government took over private companies. In
1977 the modern Jakarta Stock Exchange was opened, first under
government control and later privatized. Growth was slow at first, with
only 24 traded companies by 1987. By 2000, only 278 companies have been
listed, most of them owned by the company founders with small amounts of
public ownership.